Thursday, May 29, 2014

The Puzzle Piece That Apple Really Bought

Jimmy Iovine image
Now that the announcement has been made that Apple’s acquisition of Beats Electronics has been completed for $3 billion, and that Beats co-founders Jimmy Iovine and Dr. Dre will join Apple in yet unspecified executives roles, it’s important to take a step back and examine what has really gone down here. There’s much more than meets the eye.

As I alluded to in a previous post, there were just as many reasons for Apple to avoid the Beats deal as there were to make it. That said, just about everyone (myself included until now) has missed the big picture point of the purchase. The deal really isn’t about Beats music service or its headphone business. It’s all about Iovine.

Apple CEO Tim Cook realized that while he may be a great operations guy, he doesn’t have the market vision of his predecessor Steve Jobs (who could?). Music has been responsible for the resurgence and subsequent market rise and dominance of Apple, not so much from a revenue point of view (although the sales from music are substantial), but as means to an end to sell what really makes the company money - its hardware. Apple needs someone who is capable of looking into the future in a way that no one else at Apple has been able to since Jobs passed nearly three years ago.

While it’s too much to expect Iovine to be another Jobs, he has proved to be quite deft at navigating the minefield that is the entertainment industry - enough so to build a substantial billion dollar company in a mere seven years. This was done by seeing a hole in the market (high-end headphones), then recruiting the well-respected hip hop producer Dr. Dre to provide credibility and marketability to an underserved market. He then granted an exclusive manufacturing and distribution license to Monster Cable, a company perfectly suited to instantly provide widespread availability of the product. The distribution deal we terminated at the beginning of 2012, at which time Beats took the manufacturing and distribution in-house. All the hard work of establishing the brand had already been done. Read more on Forbes.

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